The distortionary effects of unconstrained for-profit carbon dioxide removal and the need for early governance intervention

Abstract

Carbon Dioxide Removal (CDR) is an emerging activity with extremely limited deployment to date, but which is mathematically required to achieve net (rather than true) zero or negative anthropogenic contribution to climate change. The required scale of CDR, however, depends on decisions about what activities will be allowed to emit greenhouse gases – the “residual emissions” that must be compensated via CDR. Simultaneously, CDR’s availability is limited by resource needs and feasibility, much like conventional depletable resources. Governance and institutions, especially related to how CDR is allocated and paid for, will fundamentally shape CDR efforts, including by structurally incentivizing particular approaches and monitoring, reporting, and verification (MRV) objectives. We argue that the emerging tendency toward market-based, unconstrained, and for-profit CDR presents fundamental and predictable risks for climate and justice goals. Such a model incentivizes growth in profitable compensatory removal applications, effectively allocating limited resources based on ability to pay rather than public good, while also increasing the amount of CDR required to meet global climate targets. “Luxury” removals that could otherwise be mitigated not only displace, but actively disincentivize deployment for compensatory removals in high priority but low wealth applications, and for drawdown. Meeting these needs would likely become a socialized cost. Markets also establish unit-level property rights that require specific kinds of MRV that are misaligned with climate outcomes and face incentives for poor quality verification. We describe the need, development context, function, and resource limitations of CDR, then characterize the major challenges with the emerging unconstrained, for-profit governance model. We argue that instead implementing CDR as a centrally planned sector, with publicly deliberated and adaptable volumetric targets integrated with other climate action, could enable more just and effective outcomes.

Keywords:

• Governance
• markets
• public control
• risk
• uncertainty

Data availability statement

All data are included by reference in the manuscript.

Disclosure statement

The authors declare no competing financial interests. EG currently serves as a Board Member of the Carbon Removal Institute as an academic representative to this 501(c)3 organization, which is affiliated with the 501(c)4 Carbon Removal Alliance industry group. ST currently serves as a member of Frontier Climate Impact Fund Advisory Board.

Notes

1 We present the acronym as commonly used, but note that carbon dioxide capture without storage is not removal: as such, saying “removal and storage” is redundant.

2 We use “mitigation” to mean emissions mitigation (i.e. emissions reductions) rather than climate change mitigation, under which the IPCC and other bodies categorize both avoidance and removal approaches.

3 Also like fossil fuels, being depletable does not imply a specific time scale over which this consideration becomes limiting: the time frame is a consequence of rate of use.

4 As Beck and Krueger write, embedded “intrinsic ethics” that are explicitly or implicitly written into models can become “extrinsic ethics” with meaningful societal impact when models inform policy [49]. For CDR, a liability-based, privatized model of emissions responsibility is a key example.

5 We (EG, ST) are both former members of the US Department of Energy’s Office of Fossil Energy and Carbon Management (DOE FECM): EG on an Intergovernmental Personnel Act assignment from academic duties as the Deputy Assistant Secretary of Carbon Management (7/21–6/22), and later as Senior Advisor for Energy Asset Transformation (12/22–5/23), and ST as the politically appointed Chief of Staff for DOE FECM (1/21–3/22). During our overlapping work with FECM, we were heavily involved with the creation of the Carbon Negative Shot, with R&D prioritization for CDR in the Biden-Harris Administration, and with initial discussions related to Direct Air Capture (DAC) Hub implementation after the passage of the Infrastructure Investment and Jobs Act (IIJA, also known as the Bipartisan Infrastructure Law, or BIL). ST previously worked at Carbon180 as Deputy Director of Technology Policy and later as a Senior Visiting Scholar (8/20–1/21 and 4/22–5/23), with a focus on just and sustainable policy mechanisms to scale CDR. EG currently serves as a Board Member of the Carbon Removal Institute as an academic representative to this 501(c)3 organization, which is affiliated with the 501(c)4 Carbon Removal Alliance industry group. ST currently serves as a member of Frontier Climate Impact Fund Advisory Board.

6 As Peng and colleagues point out, conventions about the carbon additionality of forest growth relative to a recent baseline where longer-industrialized countries are judged against their deforested context and industrializing countries are judged against a preindustrial forest level tend to suggest that longer-industrialized (and usually wealthier) countries produce climate benefits by harvesting, whereas industrializing (and usually poorer, often previously colonized) countries create climate harms by harvesting [72] – further reinforcing a dynamic where wealthy countries are able to exploit their natural resources while preventing poorer countries from doing so.

7 We assume this is true in a practical sense for many decades, given that GHGs are being emitted at a rate of about 60 GtCO₂-e/year [5] and that legacy anthropogenic emissions are roughly 3 trillion tonnes of CO₂ forcing equivalents [76]. Assuming that “potential” applications include fully compensating ongoing emissions and restoring the atmosphere to preindustrial CO₂ concentrations, potential demand for CDR far exceeds supply at decadal scales.

8 As with avoidance-based offsets, this question about who can access the lowest-harm CDR (in the form of financial and other costs, for example) to satisfy legal and other obligations is extremely important but poorly explored in the literature. Returning to the mineral resource analogy explored in the McKelvey diagram above, consider that CDR resources have an “ore grade” – some are high quality and low cost; others might require substantially more cost to produce a usable resource (analogous to a vein versus porphyry copper deposit, for example). In a fully financialized, commoditized context, the highest resource entities arrive early and can “high grade” CDR resources, leaving more difficult and/or more expensive resources for lower resource entities that might not move to CDR as quickly. Although this dynamic seems distant in a moment where CDR is largely pre-commercial (so the earliest movers may pay a premium for technology development), once approaches are largely mature, dynamics like lower cost land, access to suppliers, better quality storage sites, etc. could become relevant. As an example in the avoidance offsets context, consider that a low-wealth country might sell the climate benefits of its new wind farm (a common project type in the Clean Development Mechanism context) to a high-wealth country that continues to operate its coal plants. When the low-wealth country later needs to show compliance with an emissions schema, the only offsets available for it to purchase are associated with high-cost mitigation activities that the wealthy country was unwilling to pursue in the first place – i.e. the low-wealth country sold its lowest cost opportunities for mitigation and now must find alternative ways to comply.

9 In early stages, we might expect to – and in fact do – observe pressure from some CDR companies to increase MRV stringency to preserve the integrity of markets and marketed claims, particularly because the widely variable certainty (and time scales) of claimed removals mean that some companies have an incentive to align policy with their own technologies’ capabilities. As the industry matures, we would likely expect lobbying efforts to focus on reduced stringency up to the point that the most powerful actors are protected from competition from those selling lower quality products. For example, DACCS companies that claim 1,000 year geologic CO₂ storage have an incentive to prevent forestry companies that can only claim 10-100 year biologic CO₂ storage from entering the market, but do not have an incentive to require a standard of 1,000,000 year storage, 0 geologic leakage, responsibility for compensating for any leaked CO₂, etc.

10 Notably, it is not guaranteed that CDR deployments are possible for any envisioned scale that might be mathematically necessary to hit a given target, which means that prioritization of how to allocate limited CDR resources is especially important at times of great uncertainty.

11 Of course, it is reasonable to ask whether applying compensatory CDR to avoidable emissions is preferable to continuing to emit (i.e. not avoid) avoidable emissions. The answer depends on the counterfactual. If CDR is applied to avoidable emissions for a couple of years while the mitigation mechanism is set up, and then transitioned to either high priority compensation or drawdown purposes, particularly if the avoidable emissions emitter pays much of the life cycle cost of the CDR, this approach could be beneficial. At this very early stage of negotiating what net zero and net negative emissions might be, though, another (and possibly more likely) scenario is that an emitter of avoidable emissions who is able to access CDR at an acceptable cost will view their task as complete and continue to use CDR for these avoidable emissions indefinitely if not forced or strongly incentivized to transition to mitigation approaches. Even if mitigation might ultimately be less costly, transaction costs associated with changing approaches could be very high, especially if CDR prices are considered acceptable and might even have the potential to fall. A strong regulatory framework could potentially encourage the first scenario.